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February 1, 2019 12:15 PM, EST

Eaton Reports Mixed 4Q, Full-Year Earnings

Eaton Endurant transmissionEaton Cummins Automated Transmission Technologies' first core product is the Endurant, a 12-speed automated transmission. (John Sommers II for Transport Topics)

Power management company Eaton Corp. reported increased revenue for the fourth quarter and full-year periods, while net income declined in both.

In the quarter ended Dec. 31, net income was $632 million, or $1.46 per diluted share, compared with $634 million, or $1.43, a year earlier.

Revenue increased to $5.4 billion compared with $5.2 billion in the 2017 period. The sales increase consisted of 7% growth in organic sales, partially offset by 2% negative currency translation, according to the Dublin-based company.

Craig Arnold

Arnold

Currency translation is used to convert the results of a parent company’s foreign subsidiaries to its reporting currency.

“We had a very strong fourth quarter, with better-than-expected organic revenue growth and margins,” Chairman and CEO Craig Arnold said in a release. “Organic growth came in at 7%, 1% higher than our guidance. Our segment margins in the fourth quarter were 17.4%, 20 basis points above the midpoint of our margin guidance and 100 basis points over the fourth quarter of 2017.”

In the quarter, the vehicle segment posted sales of $821 million, down 2% from the fourth quarter of 2017, driven lower entirely by negative currency translation, according to the company.

The unit’s operating profits were $147 million, up 4% over the fourth quarter of 2017.

“Our revenue growth in the vehicle unit was affected by revenues transferring over to the Eaton Cummins joint venture. The joint venture’s revenues grew 45% in the fourth quarter of 2018,” Arnold said.

The companies announced their 50-50 joint venture — Eaton Cummins Automated Transmission Technologies — in April 2017. Its first core product is the Endurant, a 12-speed automated transmission.

The vehicle unit had an operating margin in the quarter of 17.9%, up from 17% a year earlier.

Eaton expects the North American Class 8 truck market to be flat with 2018, a strong year.

Eaton logo

The company’s commercial vehicle products include transmissions, clutches, hoses and fittings, lubricants and diagnostic tools.

Sales in the eMobility segment were $80 million, up 10% over $73 million in the fourth quarter of 2017. Organic sales were up 11%, partially offset by 1% from negative currency translation. Operating profits in the fourth quarter were $9 million, down 10% from the fourth quarter of 2017 due to increased investments in research and development.

The unit — launched in March 2018 — combines elements of Eaton’s electrical group and vehicle group to deliver electric vehicle solutions to passenger car, commercial vehicle and off-highway vehicle manufacturers.

“Operating margins in the quarter were 11.3%,” Arnold said. “We continue to make good progress in new product development, and we are ahead of most of the 2018 year-end objectives we had set for eMobility.”

With eMobility, Eaton forecast continued progress on more than 30 growth opportunities, without elaborating in its earnings release.

Three primary areas of focus for automotive and commercial vehicle customers in eMobility are intelligent power electronics, power systems and advanced power distribution and circuit protection.

At the same time, the company repurchased $700 million in shares in the fourth quarter, or 2.3% of its shares outstanding at the start of the quarter. “We intend to continue taking advantage of any periods of share price weakness to buy our shares back,” Arnold said.

For the full year, net income was $2.1 billion, or $4.91, compared with $2.9 billion, or $6.68, a year earlier.

Revenue grew to $21.6 billion compared with $20.4 billion a year earlier.

In 2018, Eaton fully offset the impact of tariff and commodity inflation with price increases.